U.S. Chamber of Commerce Chief Policy Officer Neil Bradley explains the details of the Employee Retention Tax Credit. How much is the tax credit worth? The ERTC is worth different amounts for 2020 and 2021, so we will describe them separately. For wages paid after March 12, 2020, and before January 1, 2021, the ERTC can be applied to 50% of qualifying wages up to $10,000. This means a maximum of $5,000 per employee could be credited back to your company if it qualifies. For wages paid after January 1, 2021, and before July 1, 2021, the ERTC can be applied to 70% of qualifying wages of up to $10,000 per quarter. This means companies could receive a maximum of $14,000 per employee through June 30. Wages are not limited to cash payments but can also include a portion of the cost of employer-provided health care. However, compensation does not include paid sick or family leave for which the employer is reimbursed under the Families First Coronavirus Response Act. Can self-employed and 1099 workers use the ERTC? Generally speaking, self-employed individuals can not take advantage of the ERTC in regards to their own self- employment earnings. However, some self-employed
individuals may qualify for the ERTC if they employ other workers in their trade or business. Given the special rules for self-employed workers, it’s strongly advised to talk over the caveats with a tax preparer if they believe they qualify. How do I receive this credit? This refundable tax credit can be applied against an employer’s portion of payroll taxes, which are reported quarterly. Basically, your company can be reimbursed for the credit by taking out deposits of payroll taxes that would have normally been withheld from employee wages. Eligible employers can report wages and related health insurance costs for each quarter on their quarterly employment tax returns via a Form 941 beginning with the second quarter of 2020. Additionally, if a company’s employment tax deposits do not cover the credit cost, that employer can receive a payment in advance from the IRS by submitting a Form 7200. This means potentially having the ability to get the tax credit back early in the form of a check from the IRS. Companies that believe they are eligible for the ERTC should talk to their tax preparers and payroll companies immediately to see if they can take advantage of 2020 and 2021 credits. The Internal Revenue Service may also issue further guidance regarding the ERTC, so please contact the IRS if you have questions. n
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January 2021 | The Business Review
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